Commercial Part 3: SOGA

The final part of the commercial course deals with contracts for the sale and supply of goods and services. In reality this part of the course deals primarily with the Sale of Goods Act 1979 (as amended) – also known as SOGA. Contracts for goods often take place in a commercial setting, far removed from any lawyers or, in some circumstances, even written words! Picture a man in a warehouse answering a phone call from a man from a retail outfit, taking an order for goods and agreeing a price. As you will all know from contract law, on delivery or payment this will constitute a binding contract. However, it is the most basic of contracts and there is a lot of detail lacking: when and how the goods will be delivered, when and how payment has to be made, what quality the goods have to be, etc. SOGA steps into this situation, and implies a number of terms into a contract where that contract is silent.

SOGA is a very useful tool for contract lawyers.

SOGA is a very useful tool for contract lawyers. As the terms are implied in their form in the Act, and interpreted in accordance with established case law, they are easy to prove and scope; you are not arguing about what a drafted term means. It is important to note that SOGA implies these terms as conditions; that is, breach of a SOGA term would be considered a fundamental breach going to the heart of the contract.

However, SOGA limits where a non-consumer buyer may reject goods for breach in certain circumstances.  SOGA terms can be limited or excluded but this is governed by UCTA.

There are a number of terms that SOGA implies into a contract. I am not going to go through all of them, but will look at a couple of the key concepts: correspondence with description (s. 13), satisfactory quality (s. 14(2)) and fitness for purpose (s. 14(3)). There are terms that relate to delivery, the legal status of the goods, and many other areas, but in reality the majority of arguments boil down to the goods not being what was intended or not being of sufficient quality.

Sale by description (s. 13)

A sale by description is any sale in which there is a description to ascertain the goods. However, SOGA states that a situation where the buyer selects a displayed item is not prevented from being a sale by description. Therefore, someone selecting a packaged shirt and tie with a described size from a clothes shop, or an item from a supermarket, may still be a sale by description.

The courts have sought to restrict the overlap of sale by description and satisfactory quality, so not all words that describe the goods may actually form the contractual description.

A sale by description is any sale in which there is a description to ascertain the goods.

It is difficult to predict what would be included; the modern trend is to restrict the approach, limiting the description to the words which the parties intended to identify the goods. Care should therefore be taken when describing an item from a seller’s point of view, as it may unintentionally form part of the contract.

The words forming part of the description when the goods are sold must exactly correspond to the goods in question. Any deviation will be a breach of the implied s. 13 condition, entitling the buyer to reject the goods, terminate the contract and sue for damages. In some cases it will be clear where the goods do not correspond to the description; a red motorcycle, for example, is certainly not a black car. However, these are not the circumstances that make case law, and legal arguments usually arise where the distinction is more subtle. There are a number of cases that show the courts’ approach to this – it is important to remember that s. 13 is often construed narrowly where s. 14 may apply. Liability for breach is strict; there is no room to argue a defence.

Quality and fitness (s. 14)

Unlike s. 13, s. 14 only applies in the course of business and not to purely private sales.

Unlike s. 13, s. 14 only applies in the course of business and not to purely private sales. This relieves the private seller from having to ensure quality or fitness for purpose which he may not have the expertise to guarantee. You may have to analyse whether a sale is in the course of business or not. In Stevenson v Rogers [1999] 1All ER 613, the courts held that sale of a trawler by a fisherman (who was in the business of being a fisherman) to another fisherman was in the course of business. The fisherman was not in the business of selling trawlers but nevertheless the court held it was sold in the course of business.

Older cases have had a narrower interpretation; it is likely that this will depend on the circumstances of the case. In an exam situation, if it is not clear cut it will be important to raise this point, but perhaps suggest you require more information or that it will be at the court’s discretion. It would be a bit of a gamble to decide that s. 14 does not apply and therefore not include it in your answer!

Satisfactory quality (s. 14(2))

SOGA defines goods as of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances. Logically, price and description do have a bearing: you would expect a ‘brand new’ car costing significantly more than a ‘used’ car of the same model and make to be of higher quality. Branding will have an impact on this as well; a reasonable person may expect the quality of a pair of shoes from Clarks to be higher than a corresponding pair of shoes from Primark.

Section 14(2B) provides a non-exhaustive list of factors that should be taking into consideration when assessing satisfactory quality:

SOGA defines goods as of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory

• Fitness for common purposes. The test established is that goods must be fit for the purpose or purposes for which they are commonly bought. However, where more than one common purpose exists, goods will be of satisfactory quality if they meet only one, putting the onus on the buyer to make the seller aware if there he has a specific purpose in mind.
• Appearance and finish. These are probably more relevant to new goods, and to consumer contracts as opposed to business-to-business sales.
• Freedom from minor defects. This is a concept which is not defined by SOGA and will depend on the case. It is not intended that a minor defect will render goods unsatisfactory, but it is not clear how many defects, or what nature of minor defect, would do so.
• Safety. Where goods are missing a key component required for safe operation, or where there is deviation from a specification in such a way that is rendered unsafe, it is likely to be unsatisfactory quality. However, goods are not unsatisfactory just because they could have been made safer. A bunk bed is probably unsatisfactory if it does not have a safe ladder, but it probably will still be satisfactory if the rail on the top bed stopped you falling out but could have been higher.
• Durability. Goods should be reasonably durable, which is to say that they should be of a quality on delivery that will ensure they remain usable for a reasonable period. What constitutes a reasonable period will depend on the circumstances and all of the above factors. This relates to the quality at the time of supply; if the goods fail sooner than expected due to another factor, such as extreme weather or misuse by the buyer, then this would not necessarily be a breach.

Other relevant factors could be the extent of remedial work required to fix a defect, packaging or instructions could also be relevant.

Goods must be of satisfactory quality when the risk in the goods passes from the seller to the buyer, but latent defects discovered later may also render goods unsatisfactory. However, SOGA states that any matter that is specifically drawn to the attention of the buyer before the contract is made, that should be revealed by an examination of the buyer where the buyer inspects before the contract is made, or any matter which would have been apparent from inspection of a sample where sold by sample, is excluded from satisfactory quality. It would therefore be important to advise a buyer to take the time to inspect goods properly in order that he is not stung further down the line.

Fitness for purpose (s. 14(3))

This section of SOGA implies a condition that the goods are supplied reasonably fit for the specific purpose of the buyer.

This section of SOGA implies a condition that the goods are supplied reasonably fit for the specific purpose of the buyer. This condition is only implied where the buyer makes it known to the seller, either expressly or by implication, that the goods are for a particular purpose, except where it is unreasonable for the buyer to rely on the skill or judgement of the seller. Therefore where the buyer informs the seller he intends to use the goods in a certain way, in conjunction with other goods, or where this intention is apparent from the situation, the goods must be fit for that specific purpose. For example, where a seller knows the buyer is a farmer buying for his farm, supplying ploughing machinery not of agricultural grade is likely not to be fit for purpose, even if it could be used to plough.

The particular purpose indicated by the buyer does not have to be abnormal – he could indicate he intends to use the goods for their normal purpose and still rely on s. 14(3). The goods have to be reasonably fit for purpose, therefore the more specific and narrow the buyer describes his purpose, the more closely the goods will have to fit that purpose. It will be important for the buyer to be as explicit as possible: asking for Canon printer cartridges for a particular model of printer will require a closer fitness for purpose than simply requesting Canon printer cartridges.

Section 14(3) requires the buyer to reasonably rely on the seller’s skill and judgement. This will be easily satisfied in many circumstances; consumers buying from retailers and anyone buying from a manufacturer will usually be said to rely on them.  However, if the buyer’s purpose is insufficiently communicated he potentially may not be reasonably relying on the seller’s skill and judgement: the seller is not a mind reader!

Where a buyer supplies a specification, he will rely on the seller to produce the goods to the specification. The buyer will be relying on the seller to use components that are fit for purpose, but not that the end result will be. Where a specification is silent, the buyer will be relying on the seller’s judgement.

Consequences of breach

If goods supplied do not conform to the terms of the contract, the buyer may claim damages. If the term broken is a condition, the buyer may reject the goods and terminate the contract, provided the buyer has not accepted the goods. Alternatively, the buyer may elect to keep the goods despite the breach of contract. If he does so, he will still be entitled to claim damages. Where the buyer is a consumer, and there is a breach of an express term or a term implied by ss 13–15 of SOGA, he may have the right to require the seller to replace or repair the goods, or to reduce the contract price.

Exclusion of the implied terms

As a result of the scope of SOGA, very often sellers will try to limit or exclude the clauses. Express terms relating to quality, purpose or the description will reduce what is implied by SOGA and the seller could include a clause excluding all implied terms. However, any limitation or exclusion of the implied clauses will be governed by the Unfair Contract Terms Act 1977 and by common law.

The common law rule is that any exclusion or limitation will be interpreted contra proferentem, that is, against the party seeking to rely on it. Therefore any ambiguity in a clause limiting SOGA will be construed narrowly, potentially exposing the seller to liability.

As a result of the scope of SOGA, very often sellers will try to limit or exclude the clauses

UCTA prevents s. 12 of SOGA being excluded at all. Sections 13–15 cannot be excluded where the buyer deals as a consumer, and in other cases the exclusion must satisfy the test of reasonableness. It is actually a criminal offence (under the Consumer Transactions (Restrictions on Statements) Order 1976) to exclude the statutorily implied terms or restrict liability for their breach in a consumer contract. It would be advisable to have a proviso on an exclusion clause so that it does not apply where the buyer is a consumer, to offer some protection to the seller.

For the exam, it will be important to have a real understanding of how the implied terms interact and how they are interpreted. I would expect at least one of the questions to have a SOGA element and usually these will be an area where interpretation will depend on the circumstances. I recommend looking up a number of cases, as recent as possible, where the question of the fitness for purpose, quality or description was settled, and having these to hand. There will be some examples in your textbook, but these may not correspond very well to the scenario you are set. Go through each section of SOGA methodically, to ensure you don’t miss anything, even if the question is clearly a fitness for purpose situation. The terms often overlap, and it might be possible to argue more than one!

SOGA is really a crucial piece of any contract lawyer’s arsenal and really any lawyer who deals with business.

SOGA is really a crucial piece of any contract lawyer’s arsenal and really any lawyer who deals with business. I have come across SOGA-type arguments in the context of insolvency, construction and marine law as well as commercial. It is very useful to have the SOGA terms at the back of your mind when reading any contract of sale or supply – they are key to that contract’s interpretation and will have some impact on the advice you give your client.